Lecture Notes on US Tariff Policy Changes

Introduction

• Overview of recent changes in US tariff policies under Donald Trump.
• Concept of "Liberation Day" and its impact on international trade.

Background on Tariffs

• US tariffs imposed on various countries before Trump's tenure.
• Threatened tariffs on Mexico and Canada, which were lifted but might return.
• Introduction of 10% tariffs on China (China 1.0, China 2.0).

New Tariff Policies

• Baseline Tariff:

  • Introduction of a 10% baseline tariff on all countries, including the UK.
  • This is considered just a starting point by the White House.

• Reciprocal Tariffs:

  • Additional tariffs based on the tariffs and non-tariff barriers other countries impose on the US.
  • Canada and Mexico might face reintroduced tariffs.

Impact on Global Trade

• China:

  • Reciprocal tariffs on China raise total tariffs above 50%, making trade difficult.

• Vietnam and Cambodia:

  • Aimed to curb goods routed through these countries into the US.

• UK and EU:

  • UK faces a 10% tariff, the lowest rate among G7 countries.
  • EU faces an additional 20% total tariff.

Market Reactions

• Stock Market:
  • Initial announcement led to a rise in NASDAQ futures, followed by a significant drop.
  • Anticipation of further market falls in Asia, US, and Europe.

Closing the "De Minimis" Loophole

• Significance:
  • Affects low-value items not previously subjected to tariffs.
  • Significant for China's fast fashion exports, e.g., Shien.
  • Presents administrative challenges, as seen in previous efforts.

Challenges and Future Implications

• Historical Perspective:

  • Tariffs were once a major federal revenue source but are now minimal.
  • Proposal to increase federal revenue through tariffs is challenging in modern economies.

• Re-industrialization Goal:

  • Aim to boost domestic manufacturing and raise funds through tariffs.

• Retaliation and Ongoing Developments:

  • Expected retaliatory measures from affected countries like the EU.
  • Ongoing discussions and reactions likely to continue for weeks or months.

Conclusion

• A major shift in US tariff policy with significant global trade implications.
• Ongoing debates about the efficacy and impact of these policies.